Apr 23 #SocialHousing

Hey #Hashtaggers, hope all dozen of you loyal readersare doing well! I've got another hopefully spicy #CentristDataMining post for you guys. This one's a bit different since it's not just me analyzing someone else's policy, but it's me actually coming up with my own idea, which hopefully you all will find worth talking to your city councilmembers about. With that intro, let's dive in!

This idea came when Matt Bruenig, a progressive policy researcher, was hyping up a policy paper his think tank authored which got the new "PHIMBY" (public housing in my back yard (wordy – I know)) activists really excited. You can read more details in his 40 page paper [PDF warning]. The tl;dr of the paper is that local governments should take out municipal bonds to build housing, and pay back the interest of those bonds from the rents tenants pay on the new projects. But if you read the paper, their analysis stops short of any actual pro-formas or analysis on the feasibility of the proposal in a real-world type scenario. So, I decided to extend the idea.

What if the city instead buys apartment buildings on the open market, and rent them out to pay back the municipal bonds?

First, we need to dive in the fun, wild world of Washington State municipal bonds. Old #Hashtag favorite MRSCcomes to the rescue here. They describe the three kinds of bonds city governments can issue - which you can read about in the link. But the one I want to turn your attention to is what's called a "revenue bond". MRSC describes revenue bonds as "bonds [that] may be issued to finance projects for any enterprise that is self-supporting". This is exactly what an apartment building is. And if you read the RCW statute 35.41.030, which authorizes local governments like cities to issue these bonds, you can see that acquiring buildings is one of the valid use cases of these bonds. The only restriction is that the project the bond funds "provide[s] funds for defraying all or a portion of the cost" of the bond itself – so keep that in mind for later.

As the MRSC mentions, these revenue bonds are usually issued to fund things like sewer and electrical improvements. It turns out that the City of Seattle does issue these types of bonds on the open market, so we can tell how much interest these bonds generate to continue our analysis. The bonds that are on the market all have a 5% coupon, which means that a $1,000 requires annual payments of $50 a year. We'll have to make sure that the rents generated by the buildings the city is to purchase are high enough to pay back that 5% coupon.

Now let's look at apartment buildings actually for sale today on the market! From some light googling, I found the website loopnet.com, which lists apartment buildings for sale (RIP your facebook targeted ads from now on), and you can see there are a bunch of buildings of all sizes and ages up on that website.

Let's look at the traditional #CentristDataExcelSheet, which lays out all these numbers.